New year…. a time to recover from the festive season, make plans to start going back to the gym and, for a lot of us, the time when we look back on last year and make decisions on how this next year will be different.
When we start a new year or a new decade we often start with the best of intentions. This is the year we will feel in control, this is the year we will feel like an adult and this is the year that we will be our best selves. While these are all lofty ambitions it is a good idea to set some proper goals and setting our financial goals are vitally important. What do you want to achieve by the end of 2020? What are your short-term plans? When and how will you get out of debt? What are you saving for?
So, here are five things you can do to help you stay financially on track and to feel more in control of your own financial freedom.
All goals need to be SMART, this means Specific, Measurable, Achievable, Realistic and Timely. Saying you want to retire at 50 is all very well but making a plan to save a measurable amount of money every month into investments now and calculate what returns you need to make to reach that retirement goal makes is far more achievable. A lot of financial planning is working out what you want to do and then doing the maths to make sure that it works.
What should your priorities be when making a New Year’s Money Resolution list?
1. This year... I want to figure out where I am now
How much do you actually have in the bank, how much are your credit card debts and what is your tax bill? A lot of us have vague numbers in our heads as to how much we have spent over the Festive season and also what we should be saving but how close are we to our goals?
The best way to determine this is good old-fashioned pen and paper (or excel if you are feeling fancy). Where do you stand today? What are the moneys coming in and going out and what is owed to you and by you?
This can feel very daunting, but it is vital to have a realistic view of your starting point and to not bury your head in the sand when it comes to your finances.
Once you have a clear view down in black and white you can begin to work out how much you need to have in the bank in cash to feel comfortable and safe. I advise my clients to have a base line of three months of expenses as a minimum emergency fund. This can change from person to person and will depend on your personal expenses, how much you feel you can save and also your previous experience of job security etc.
An excellent place to start using a SMART goal to make a realistic change is I’m going to list my incomings and outgoings, and look back through my credit card statement to see how far off my ‘ideal’ expenditure I am.
Questions to ask yourself:
What are the things that I know I spend too much money on?
How can I be better at managing this?
Would taking only cash out with me for the next few weeks stop me impulse buying or spending too much socially?
What is my monthly essential expenditure and what do I spend the rest on?
What are my wants vs my needs?
2. This year... I want to conquer my debt
It is never a happy feeling borrowing money, especially if it feels out of control. This is something that is frequently put down to the bottom of the to do list, especially after a busy social season.
The first step to determining how to get out of debt is to be honest with yourself and write it all down. How much do you owe? What is the interest rate? What can you afford to pay back and how realistic is it?
When I first moved to Hong Kong it was overwhelming and I got myself into credit card debt trying to keep up with everything here. Credit card debt can be charged up to 50% interest per year on some cards which means that bargain you can’t resist in the January sales, or that present you are sure your family is desperate for might cost you a hell of a lot more in the long term, especially if you take a long time to pay it back. If you are in debt, then you need to examine your monthly spending and work out where you can make savings.
Your New Year’s Money resolution might need to be to embrace JOMO (joy of missing out) for a couple of months to get back on track or to avoid going to Lan Kwai Fong and concentrate on cheaper activities. A SMART goal could be I’m going to make a plan that enables me to pay off $2,000 a month from now so that I’m totally debt free in a year from now.
Where to start:
How much are my student loans?
What is my credit card debt?
What are the interest rates that I am paying?
How can I transfer the balance to a lower interest rate card or structure it better?
3. This year... I want to safeguard myself and organise my Protection
If something were to happen to your heath, would you be financially able to support yourself? This includes medical insurance to cover you in the short term if you were to get sick and critical illness cover in case of a longer-term illness.
Is this in place and are you confident you know what it all means? If you are employed, the best start is to email HR and ask for a breakdown of what they cover you for. At that point it is advisable to sit down and work out if that amount is enough. A good financial adviser can help with this.
Going forward from this, a SMART goal could be I’m going to figure out how much protection I need by determining what my essential expenditure would be if I were sick. Plan A is to stay in Hong Kong and I’ll need to cover rent, bills, groceries for as a minimum 2-3 years, and Plan B is to move home in which case I’d need to cover XYZ…
What I need to consider:
What is my health protection coverage? Is it enough?
What protection does my work provide?
If I was to get sick what would happen?
Get critical illness insurance
4. This year... I want to master my investments
The New Year is a great time to review your investments and to start thinking about making some if you haven’t already. Once the tax bill is paid you can take stock of what you have and plan some long- and short-term goals.
Once you have some savings in your bank account that will enable you to survive in an emergency, what will you do with any extra money you have? The earlier you start saving the better and if you can hold back on some festivities you will feel a lot better going into 2020 with some cash to start investing.
There is a lot of investment literature online so much so that it can feel paralysing and like white noise. Start small, work out what you can afford to invest and make sure that you are comfortable and understand investments.
You work hard for your money and now it’s time for your money to work hard for you.
An investment that most people in Hong Kong ignore is their MPF. It might be that you have several accounts from previous jobs and need to consolidate them or that you picked the funds at random and have no idea what they are doing. Your SMART goal could be I’m going to spend an hour this weekend organising my MPF by logging in to my online account, consolidating my pots, and making sure my fund choices make sense. Your MPF is a good way of getting used to investments and learning how they all work. It is compulsory so you might as well get the most out of it!
Other things to think about:
What can you afford to save each month or each quarter?
Make an appointment with a financial advisor
How do you feel about risk? Take a questionnaire.
When would you need access to this money?
5. This year... I will take time to review
A good way to start is to imagine and write down what you would do if you won the lottery. What would your priorities be and are these short- or long-term plans? If you want to retire in Thailand or the South of France what are you doing today to make that a reality?
A lot of my suggestions involve looking forward to the next few years and what you can do to make a difference to your future. It is also a great time to look back on what you have accomplished in the last year. This doesn’t need to be financial. What have you learnt, what experiences (positive and negative) have you had that you can learn from and what are you going to do this year to make sure that you have no regrets at the end of the year?
Here are a few things you could reflect on:
What are three things I did this year I am proud of?
What has been my biggest challenge at work?
What has been the biggest personal challenge and how did I overcome it?
Have I spent time doing what I wanted this year?
Am I proud of how I have behaved in difficult situations?
What would I change?
The most important thing is to relax over the festive break and to take some time be it a walk or a few hours in a café to think about all you have done and congratulate yourself on another year. Even a seemingly rubbish year will teach you what you can do differently and spending some time looking at where you are and what you have accomplished means a much more positive start to the new decade!
The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.